But that doesn’t mean the project is dead.

Climate action groups, governments, development agencies and even some banks and investors are holding out hope that the trail-blazing fund – known as the Tropical Forest Forever Facility (TFFF) and spearheaded by COP30 host Brazil – can become a reality, providing billions of dollars annually to halt tropical deforestation.

“This is a landmark moment for nature and climate finance,” Kirsten Schuijt, director general of the World Wildlife Fund, said in a statement. Ani Dasgupta, CEO of the World Resources Institute, said the fund “has real potential to be a breakthrough for the world’s forests.”

Yet only a handful of COP countries pledged to invest in the fund, totalling $6.6 billion in initial capital, well short of the $25-billion target for government contributions set by Brazil. Brazil is aiming to raise a further $100 billion in private money from asset managers, investment funds, private investors, philanthropic organizations and corporations, for a total fund size of $125 billion. (All funds in U.S. dollars.)

The initial contributors included Norway, Brazil, Indonesia, Germany, France, Colombia and Portugal. These countries pledged to invest in the all-important first tier of TFFF’s capital, money that would be used to provide first-loss guarantees to cushion private investors against losses.

Despite the small initial contribution, 53 countries endorsed the concept, suggesting there could be more public money to come. The European Bank for Reconstruction and Development and the Asian Infrastructure and Development Bank – two of the world’s largest development banks – are also considering investment in the fund, according to the Devex media platform on international development.

And Daniel Hanna, head of sustainable and transition finance for Barclays, said the British-based bank is looking to support the fund through bond underwriting services. Underwriting is a critical part of the process to sell bonds to institutional investors. “I remain very optimistic around the TFFF moving forward,” Hanna said.

Forests are ‘worth more standing than felled’

The fund was one of the signature projects announced by Brazil at this year’s COP, which was held in the Amazon rainforest city of Belém. The concept was held out as a way for private finance to ramp up support for forest and climate protection while addressing inequalities between the Global North and South.

Tropical forests are suffering severe deforestation from commercial agriculture (particularly from beef, soy and palm oil), logging, mining and infrastructure development, moving the forests from carbon sinks to carbon sources. The fund would be an endowment to provide permanent funding to tropical nations to keep their existing forests intact. “It is an unprecedented initiative,” said Brazil President Luiz Inácio Lula da Silva in launching the fund at COP. “Forests are worth far more standing than felled.”

The fund plans to invest in government and corporate bonds (excluding bonds in fossil fuels and environmentally destructive sectors) primarily in developing countries.

The fund is also based on a “blended finance” model. The sponsor money from governments would provide a reserve against losses by private investors, mitigating the risk of placing capital in higher-interest investments. This would enable the fund to attract capital from a broad range of market players such as pension funds, asset managers and investment funds.

Brazil’s balancing act at COP30

The total target return is 7.6%. Investors would receive the lion’s share of this income (targeting a 4.9% return), and the remaining 2.7% would be used to pay developing countries a fee for maintaining tracts of tropical forest within their boundaries. Penalties would be incurred for deforestation. Indigenous communities on those lands would receive at least 20% of the funds to manage the forests.

At the target level of capitalization of $125 billion, the fund would generate $3 to $4 billion annually to be disbursed to about 75 tropical countries and their Indigenous communities. The World Bank estimates this would work out to about $4 per hectare of protected forest land.

TFFF is “quite unique and quite pioneering” in the world of blended finance, says Nick Zelenczuk, a researcher with the Toronto-based Convergence blended finance think tank. Blended finance models typically use public capital to cushion losses by private investors in higher-risk impact ventures. But rather than generating a direct return from the project, TFFF shares the proceeds of the bond fund between the forest and the investors. “Using the return from the fund to drive the incentive scheme is novel in the [blended finance] market,” Zelenczuk says.

Forest payments versus carbon markets

One of the reasons there is high interest in making TFFF work is that it is considered a more promising climate finance model than carbon markets, the option that has commanded much attention at recent COP meetings.

The idea of carbon markets is that corporations or financial institutions buy “carbon offsets” that are linked to specific volumes of carbon avoided, reduced or removed through activities such as reforestation or renewable energy. The system of accounting for these carbon volumes is not well established. The value of carbon credits is based on estimates of future carbon reductions, estimates that may be wrong to begin with or fail to meet projections. A study last year of more than 2,000 carbon-credit projects found that only 16% of the projects achieved the carbon savings claimed. As a result, corporations and investors are losing interest in carbon markets, and money for projects is drying up.

The TFFF represents an alternative focused on forest lands – not estimated carbon – which can be transparently and accurately tracked over time. If the lands become deforested, the annual payments will stop or be reduced.

“Offsets have too often been used as a license to pollute,” Australian billionaire businessman Andrew Forrest said in a statement announcing a $10-million investment in TFFF. “They categorically do not work the vast majority of times they have been independently measured. This is the opposite. The TFFF makes forest protection a strong economic choice in favour of our environment – rewarding countries that actually keep their forests intact.”

But will there be enough money?

With such a disappointing start, however, will the fund be large enough to create lasting impact? After the British government signalled early on at COP that it would not be supporting the TFFF, the project lost some momentum.

At the current level of capitalization, tropical forest nations will receive only 16 cents per hectare per year, a far cry from the $4 projected by the World Bank. But the Brazilian government believes the fund is well positioned to attract more funds. Finance Minister Fernando Haddad called the initial investment “auspicious,” anticipating that “after this first investment . . . we will have a very good start.”

Launch of the TFFF fund has come at a timely moment. The U.S. government under Donald Trump has slashed development assistance and decimated its international development agency, USAID. Other countries like the United Kingdom are also cutting assistance to poor countries. At the same time, market-based approaches like carbon credits have fallen out of favour.

A third way is needed. TFFF represents a new approach, one that uses the financial power of the markets to create a very non-market outcome, the survival of the world’s tropical forests.

Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).

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About 7.3 million hectares of forest – an area the size of Panama – is lost every year to deforestation, according to the UN’s Food and Agriculture Organization. At the current pace, the Earth’s tropical rainforests will be gone within the next century.

The demand side

An alternative development model is clearly needed for countries like Papua New Guinea (PNG) that struggle with rule of law and corrupt governance, in order to meet UN Sustainable Development Goals and lift Papua New Guineans out of poverty while ensuring environmental integrity.

Much will depend upon China, not only because of its strengthened trade relations via the Belt and Road Initiative but also because it is the destination for PNG’s raw logs. Beibei Yin, the China policy and advocacy senior advisor for Global Witness, says China should extend its own sustainability policies to PNG. China has invested US$350 billion into programs like forest conservation and erosion reduction as well as poverty reduction to protect its own natural resources and adopt a more sustainable and long-term development model. “But China hasn’t broadened its ambitions overseas yet,” Yin says.

Pressure can be brought to bear by China’s trading partners, says Yin, pointing to an EU-China joint study, titled “Feasibility analysis of the incorporation of timber legality requirements into Chinese laws or regulations to promote trade in legal forest products,” which promotes mandatory laws and regulations that would oblige checks on the legality of timber imports. This is a way for China to protect its global trading reputation, says Yin. Unfortunately, “progress has been slow.” (One Chinese company, Nature Home, which manufactures floorings, wooden doors, cabinets, etc., has publicly committed not to buy any SABL-sourced wood, says Yin.)

Asia-Pacific Economic Cooperation (APEC), the 21-nation Pacific Rim association that includes Canada, China and the United States, could play a significant role in promoting sustainability in PNG. For the first time, PNG, which is APEC’s poorest member, hosted the organization’s annual summit this past November in Port Moresby. APEC’s stated priorities include sustainability as well as innovative and inclusive growth, sustainable agriculture in response to climate change and a rules-based multilateral trading system.

As a leading example, Canada has strict laws preventing the import of products illegally sourced. These include the Wild Animal and Plant Protection and Regulation of International and Interprovincial Trade Act. The act makes it illegal to import illegally harvested plants, including wood, so importers do need to know what they are buying or risk potentially millions of dollars in fines, according to the Government of Canada Justice Laws website.

At the vanguard of progressive legislation is a new bill introduced this past February in California titled the California Deforestation-Free Procurement Act. It broadens America’s Lacey Act, which banned trade on illegally sourced wood products in 2008. The Deforestation-Free Procurement Act applies to almost all deforestation commodities such as palm oil, beef, leather and soy, while providing misdemeanor charges for companies that violate it, in addition to sanctions. The act must be passed by the California senate.

Alternative income stream

The village of Labablia, Papua New Guinea. Tallulah Photography.

Kisi Issack’s village of Labablia, an informal collection of wood and grass homes on stilts, sits a coconut’s throw away from the Solomon Sea tideline on the Huon Coast in Morobe Province, Papua New Guinea (PNG). Labablia is isolated from the outside world, accessible only by a picturesque, if bone-shaking, motorboat ride from the port city of Lae, PNG’s second largest metropolis with just over 100,000 people.

Issack, tiny and sinewy, with a weathered and kindly face, shelters in the shade out of the 30 C-plus muggy heat, slacking her thirst with just-opened, sweet, nutty coconut water. Issack is a senior guide and secretary with the Kamiali Wildlife Management Area (KWMA), founded by a Dutch NGO two decades ago. Today, KWMA is a biological research station that attracts scientists and hardy ecotourists (who pay C$400 for a five day visit) study the surrounding lowland tropical forest and the coral reefs as well as monitor leatherback turtles, which come to Lababia’s white sandy beaches every year to lay their eggs. Decreasing in number, leatherbacks, the world’s largest turtle, are classified as vulnerable, due in large part to human consumption of their billiard ball-size eggs.

Issack is proud of the role the villagers of Labablia have come to play as land and oceanic stewards. Not only are they helping protect their ancestral homeland, but the money that they make from tourism helps to support health and education in the community of 800, who live dispersed on thousands of hectares that they own under Papua New Guinea’s system of customary landownership. This alternative income stream is a bulwark against logging companies and palm oil plantations, since it funds vital infrastructure, such as community schools. Other indigenous groups, Issack says, have given up their traditional lands to logging interests in return for money, only to face long-term environmental effects. “Logging is short-term benefit,” she says.

As part of their KWMA stewardship, Issack and her fellow villagers are focusing on initiatives to preserve the sandy beaches where the leatherback turtles lay their eggs. Climate change and rising tides — especially noticeable since 2016 — are eroding beaches. In order to preserve these crucial nesting sites, Issack says there are plans underway to plant kalapulim trees close to the tideline to act as wave breakers and anchor the beach. Preserving the integrity of the land and waterways is a way to honour the ancestors, says Issack, while “conserving it for the future of our children.”

Read Roberta Staley’s feature: Papua New Guinea on the chopping block

Roberta Staley is a magazine editor and writer specializing in medical, science and business reporting.

Photos by Tallulah Photography.

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